Correlation Between KB Home and Installed Building

Can any of the company-specific risk be diversified away by investing in both KB Home and Installed Building at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining KB Home and Installed Building into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between KB Home and Installed Building Products, you can compare the effects of market volatilities on KB Home and Installed Building and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in KB Home with a short position of Installed Building. Check out your portfolio center. Please also check ongoing floating volatility patterns of KB Home and Installed Building.

Diversification Opportunities for KB Home and Installed Building

0.62

Correlation Coefficient

KB Home  Installed Building

Poor diversification

The 3 months correlation between KBH and Installed is 0.62. Overlapping area represents the amount of risk that can be diversified away by holding KB Home and Installed Building Products in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Installed Building and KB Home is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on KB Home are associated (or correlated) with Installed Building. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Installed Building has no effect on the direction of KB Home i.e., KB Home and Installed Building go up and down completely randomly.

Pair Corralation between KB Home and Installed Building

Considering the 90-day investment horizon KB Home is expected to generate 1.01 times less return on investment than Installed Building. But when comparing it to its historical volatility, KB Home is 1.22 times less risky than Installed Building. It trades about 0.06 of its potential returns per unit of risk. Installed Building Products is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  14,311  in Installed Building Products on September 12, 2024 and sell it today you would earn a total of  6,576  from holding Installed Building Products or generate 45.95% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

KB Home  vs.  Installed Building Products

KB Home

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days KB Home has generated negative risk-adjusted returns adding no value to investors with long positions. Despite fairly strong fundamental drivers, KB Home is not utilizing all of its potentials. The recent stock price confusion, may contribute to short-horizon losses for the traders.

Installed Building

Risk-Adjusted Performance

0 of 100

Weak

Over the last 90 days Installed Building Products has generated negative risk-adjusted returns adding no value to investors with long positions. Even with relatively invariable fundamental drivers, Installed Building is not utilizing all of its potentials. The latest stock price agitation, may contribute to short-term losses for the retail investors.

Pair Trading with KB Home and Installed Building

The main advantage of trading using opposite KB Home and Installed Building positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if KB Home position performs unexpectedly, Installed Building can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Installed Building will offset losses from the drop in Installed Building's long position.

The idea behind KB Home and Installed Building Products pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the FinTech Suite module to use AI to screen and filter profitable investment opportunities.